Gus Van Sant vs. Johnny Depp

Résumé de l'étude de cas

I am the new Chief financial officer of a US film studio and i have to make recommendations on four projects in order to produce a profitable movie. Firstly, i am going to calculate Net Present Value for each scenario because i have to make a selection. Indeed, i must determine the negative and the positive NPV. Then, i will explain why i have decided to include or not certain costs in the analysis. For example, rent, electricity or phone bills of the employees. After that, i will justify why you can't underestimate the financial aspect of a larger corporation and their different opportunities to save money. Then, we will also see threats of the US movie business and the mean to anticipate these risks. Finally, i will explain the power of shareholders and the relation between the case and the price earnings ratio.

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Sommaire de l'étude de cas

Question 1: Discuss all the costs that should be included as your initial cash outflow for each scenario. Explain why each should and should not be included in the analysis.

Question 2: Calculate the NPV for each scenario and explain the process.

Question 3: What is another important scenario that should be considered and what is it worth today?

Question 4: Should these costs be included in the analysis? Why or why not?

Question 5: Explain in general why this method is not the best to use.

Question 6: Describe now this might affect your financial of the projects.

Question 7: If you believe that the industry is riskier, where should that be reflected mathematically in your calculations?

Question 8: The head of the studio in our case reports to the CEO of the corporation.

Extraits de l'étude de cas

[...] Question The studio that you work for is only one part of a larger corporation. The larger corporation also has theme parks, music division, and a publishing unit. Describe now this might affect your financial of the projects. As I have said previously, the studio is just a little part of a big corporation. In this case, the corporation is composed by theme parks, music division and a publishing unit. I think it is possible to use this strength to save money because the corporate departments will fix a better price than the competitors would do. [...]

[...] Marketing cost 000). Initial cash outflow = $ + $ + $ + $ + $ + $ = $ Non included costs: I don't include previous costs of production because I suppose they were already included in the previous income statement. These sunk costs are: Wage of Johnny Depp at the beginning of the movie production: $ Cost of the movie production: $ After having calculated both initial cash outflows, we will calculate the Net Present Value of each scenario. [...]

[...] At the beginning of this case, Gus Van Sant and Johnny DEPP worked together but finally, they decided to stop this plan and work each one of his way. Indeed, they don't have the same point of view of the final project. My mission is to determine the most profitable scenario thanks to NPV. Firstly, it is indispensable to ascertain the initial cash flow. By that, on the one hand, I have to summarize all the expenses and on the other hand I have to choose the good costs and include them in the initial cash outflow. [...]

[...] In this question, we have to prove that a short payback is not always the good choice. Indeed, the head of marketing thinks Depp's project is better because we obtain a return of investment more rapidly than in the Van Sant scenario. Consequently, Johnny Depp has the quicker payback. Furthermore, a company has two possibilities at the end of the year: It could keep its cash and invest it It could distribute profit to investors Indeed, a company can underestimate the importance of the shareholders. [...]

[...] This includes the costs of both the employees and the overhead they use (rent electricity, phone, etc.). Should these costs be included in the analysis? Why or why not? Are there some occasions when they should be included and others when they should not? Explain. I think it is not possible to include costs of the studio's finance department to the movie costs. Fees like phone invoices, transport invoices, electricity costs . are general costs and these charges must be included in the general accountancy. [...]